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Implementing the carbon tax
A government consultation paper
Hon Dr Michael Cullen
Minister of Finance
Minister of Revenue
Hon Pete Hodgson
Convenor, Ministerial
Group on Climate Change
First published in May 2005 by the Policy Advice Division of the Inland Revenue Department,
P O Box 2198, Wellington.
Implementing the carbon tax – a government consultation paper.
ISBN 0-478-27125-5
FOREWORD
Climate change is one of the biggest environmental challenges facing the world today.
It is a global problem that needs a global solution. In ratifying the Kyoto Protocol,
New Zealand has joined more than 140 other countries in making a strong
commitment to begin controlling emissions of greenhouse gases that cause climate
change.
The Kyoto Protocol is designed to begin a long-term global economic transition to a
future in which limits will increasingly be put on emissions. It does this by attaching
a price to greenhouse gas emissions. That price is determined through the
international trading of emissions units, with each unit representing one tonne of
carbon dioxide or equivalent. Under Kyoto, the price of fossil fuels better reflects the
environmental costs of using them, and business and consumer choices will begin to take
these environmental costs into account.
Following extensive consultation, in 2002 the government announced a package of
policies that New Zealand will implement in responding to climate change. As part of
that package, it was decided that the international price of emissions should initially
be reflected in our economy through a carbon tax, approximating the international
price of emissions but capped at NZ$25/tonne for the first Kyoto commitment period,
2008 to 2012. Carbon tax revenue will not be used to improve the Crown’s fiscal
position: it will be recycled into the economy through the tax system.
We view the carbon tax as a transitional path toward full or partial emissions trading,
which may become a better option as world markets develop.
This consultation paper provides further implementation details on the carbon tax, and
seeks views on its proposed operation. It is a technical paper, and will primarily be of
interest to industries that will be directly involved in its implementation, such as fuel
suppliers and firms that carry out certain industrial processes.
Most New Zealand consumers and businesses will not pay the tax directly. Rather,
they will see changes in the relative prices of different sources of energy, transport
options, and other products. Even though the flow-on effects of the carbon tax will
not affect most household budgets by more than a few dollars a week, it will make a
significant contribution to our adjustment to a world in which the environmental costs
of our choices can no longer be avoided.
Tackling climate change will not be easy, but it is our obligation to future generations
to try. The New Zealand government is proud to be part of the global effort that is
taking the first step.
Hon Dr Michael Cullen
Minister of Finance
Minister of Revenue
Hon Pete Hodgson
Convenor, Ministerial Group
on Climate Change
CONTENTS
FOREWORD
Chapter 1
Chapter 2
Chapter 3
INTRODUCTION
1
Submissions
3
WHY A CARBON TAX?
5
Coverage
Negotiated Greenhouse Agreements and business adjustment assistance
Expected impacts of the carbon tax
Fiscal matters
The climate change policy package
International approaches to incorporating the price of carbon in domestic
economies
5
6
6
8
8
9
PUTTING A PRICE ON GREENHOUSE GAS EMISSIONS 10
Minimising the number of points of obligation
Setting the price of emissions
Applying the price consistently
Pass-through of the tax
Existing contracts
Stockpiles of coal and petroleum products
10
11
11
13
14
14
HOW THE TAX WILL WORK
16
Administrative roles of government agencies
Inland Revenue registration and filing requirements
Estimation issues
Exemptions, rebates and refunds
Other tax consequences
16
17
18
18
22
ISSUES FOR SPECIFIC INDUSTRIES
24
Petroleum oil and oil products
Gas and gas products
Coal and coal products
Geothermal energy
Industrial process emissions
Burning of embedded carbon from fossil sources
Products from biological sources
24
27
28
29
30
33
33
Appendix 1
GLOSSARY
35
Appendix 2
PRODUCTS AND EMISSIONS SUBJECT TO THE TAX
37
Appendix 3
NEW ZEALAND’S GREENHOUSE GAS EMISSIONS
39
Chapter 4
Chapter 5
Chapter 1
INTRODUCTION
1.1
The world’s natural climate balance has begun to be seriously affected by
human activities such as rapid industrialisation, agriculture and transport.
They are increasing the concentration of greenhouse gases in the atmosphere,
resulting in the Earth heating up at an accelerated rate. Weather patterns and
climatic conditions are changing in the process. This is known as climate
change. Unless global action is taken to curb the emission of greenhouse
gases, the impacts of climate change are expected to become increasingly
severe.
1.2
New Zealand and over 140 other countries are working to begin to reduce
emissions through the Kyoto Protocol. The Protocol is designed to be the
first step in a transition to a future in which limits will increasingly be put on
greenhouse gas emissions. The key mechanism for achieving reductions is a
“cap and trade” system of emissions allocations – each country receives a
capped allowance of emissions, then trading is allowed between countries to
encourage least-cost abatement. Trading establishes an international price
for greenhouse gas emissions.
1.3
In 2002 the government consulted on, then confirmed, a package of domestic
policies for responding to climate change. As part of that package, it was
decided that the international price of emissions should be introduced to the
New Zealand economy through a carbon tax, approximating the international
price of emissions but capped at NZ$25/tonne for the first Kyoto
commitment period, 2008 to 2012.
1.4
Revenue from the carbon tax will be “recycled” by reducing other taxes by
the amount expected to be collected. How this will be achieved will be
announced in the 2005 Budget.
1.5
This consultation paper provides further detail and seeks comments on the
proposed implementation of the carbon tax. It will primarily be of interest to
industries that will be directly involved in implementation of the tax, such as
fuel suppliers and firms involved in certain industrial processes. Feedback is
sought on how it will apply to specific industries, and whether the detailed
design proposals in this paper can be improved.
1.6
Most New Zealand consumers and businesses will not pay the tax directly.
Rather, they will see changes in the relative prices of different sources of
energy, transport options, and other products. These price changes will
provide an incentive to switch to cleaner energy sources and make better use
of energy. More information on the implications of the carbon tax for
consumers and businesses is available on the Climate Change Office website,
www.climatechange.govt.nz.
1
1.7
The carbon tax is to be applied to production and importation of various
products known to result in emissions to the atmosphere of carbon dioxide,
methane, and certain other greenhouse gases when used. The tax will also
apply to some other human-induced emissions of these gases.
1.8
A consistent price will be put on these emissions, initially set at $15 a tonne
of carbon dioxide or carbon dioxide equivalent. The rate of the tax will not
be changed in the first commitment period unless it diverges significantly
and on a sustained basis from the international price, nor will it exceed $25 a
tonne.
1.9
The carbon tax will come into effect on 1 April 2007. Starting on 1 April
2007 will help to ensure that progress on reducing emissions begins early,
enabling a more gradual transition to an economy with lower emissions.
1.10
The design of the tax aims to minimise the administrative costs of
government and the compliance costs of those liable to pay the tax or eligible
to claim rebates.
1.11
The tax is intended to affect only emissions for which New Zealand is
responsible under the Kyoto Protocol,1 which limits it to emissions occurring
within New Zealand. If a fossil fuel that has been taxed is exported or the
greenhouse gases from it are permanently embedded or sequestered (other
than in biomass), rebates will be available. Rebates will also be available to
firms with Negotiated Greenhouse Agreements, to ensure that New Zealand
remains internationally competitive.
1.12
Legislation giving effect to the tax will be introduced late this year or early
next year, and is expected to be enacted by the third quarter of 2006.
1.13
The Inland Revenue Department and the Customs Service will administer the
carbon tax. The following types of firms are likely to be required to file
regular returns with Inland Revenue:

firms that mine petroleum products2 except for crude oil that is sold in
its raw state;

firms that mine coal;

oil refineries, in regard to production of emissions in the course of their
activities;

firms that supply jet fuel to a domestic flight of a domestic airline;

firms that use geothermal energy for process heat or electricity
generation;
For further information on the Kyoto Protocol and the government’s climate change policies, refer to
www.climatechange.govt.nz.
2
Generally petroleum mining permit holders.
1
2
1.14

firms that carry out certain industrial processes (such as calcination of
limestone for cement) that result in emissions; and

firms that seek rebates of the tax, except for the export of most
petroleum products.
Rather than filing regular returns, the following types of firms are likely to be
required to pay the tax to the Customs Service, together with any tariff or
excise duty and/or GST:

importers of coal, coal products, gas, and refined petroleum products
(except crude oil imported through a refinery and jet fuel);

oil refineries, with regard to their refined products (other than jet fuel
and non-emitting products); and

importers of carbon anodes, carbon pitch and carbon black.
1.15
Firms seeking rebates for the export of most petroleum products would claim
a “drawback” from the Customs Service.
1.16
The carbon tax will apply from 1 April 2007 and continue until the end of the
first Kyoto Protocol commitment period, on 31 December 2012. Policy for
the second commitment period will be developed before the end of the first
commitment period.
1.17
The government is open to the possibility that the carbon tax will be replaced
by an emissions trading system when the international carbon market has
developed sufficiently.
Submissions
1.18
The government welcomes submissions on the proposed approach to
implementing proposals in this document. Submissions need not be limited
to the suggested submission points.
1.19
Submissions should be addressed to:
Carbon Tax
C/- The Deputy Commissioner
Policy Advice Division
Inland Revenue Department
PO Box 2198
WELLINGTON
Or email: [email protected] with “Carbon tax” in the subject
line.
1.20
The closing date for submissions is 8 July 2005.
3
1.21
Please note that submissions may be the subject of a request under the
Official Information Act 1982. The withholding of particular submissions on
the grounds of privacy, or for any other reason, will be determined in
accordance with that Act. If there is any part of your submission which you
consider could be properly withheld under that Act (for example, for reasons
of commercial sensitivity), please indicate this clearly in your submission.
4
Chapter 2
WHY A CARBON TAX?
2.1
The objectives of the proposed carbon tax are to help New Zealand to reduce
its greenhouse gas emissions3 resulting from human activities, and to prepare
the New Zealand economy for a smooth transition to more challenging
commitments after 2012.
2.2
The 35 developed countries that have ratified the Kyoto Protocol have agreed
to a cap on their national greenhouse gas emissions. Each country starts with
an allocation of emissions units equal to its target – in New Zealand’s case,
this is 1990 emissions levels. If a country reduces emissions below its target
level, it will have surplus emissions units that it is able to sell. Conversely,
countries that choose not to cut emissions to their target level will need to
buy additional emission units to cover the excess. This trading of units
between countries allows cuts to be made where they are most cost-effective
and establishes an international price for emissions.
2.3
Putting a price on greenhouse gas emissions is a fundamental element of the
Kyoto Protocol. It means that the price of fossil fuels will better reflect the
environmental costs of using them, and that business and consumer choices
will begin to take these environmental costs into account.
2.4
The carbon tax will signal to investors and consumers that they should
reduce emissions when the cost of doing so is less than the cost of the tax.
Over time, the broad awareness that there is, and will continue to be, an
emissions price will mean lower emissions than would have been the case
without a carbon tax.
2.5
Moreover, as international agreements become increasingly challenging
beyond 2012, countries that have already integrated a price for emissions into
their economies will see a growing competitive advantage over those
countries that delay and need to act more abruptly.
Coverage
2.6
The carbon tax aims to price all major greenhouse gas emissions, other than
methane and nitrous oxide from the agricultural sector, according to their
global warming impact, when doing so is feasible and cost-effective.
2.7
Although farming emissions4 of methane and nitrous oxide are exempt from
the tax in the first commitment period, farming groups are contributing to
research to help reduce these emissions.
Emissions within New Zealand’s National Inventory under the United Nations Framework Convention on Climate Change
(UNFCCC).
4
That result from animals and soil.
3
5
2.8
The tax will apply to New Zealand’s emissions from fossil-fuel based energy
supply and use, industrial process emissions, and fugitive energy emissions5
of carbon dioxide, methane and nitrous oxide. It will also include
perfluorocarbons (PFCs) that result from industrial processes.
2.9
For the present, the government is not considering applying the carbon tax to
sources of emissions that will be covered by other policies. They include
emissions of synthetic gases, other than PFCs, from process emissions and
methane from the waste sector.
Negotiated Greenhouse Agreements and business adjustment assistance
2.10
The government has introduced Negotiated Greenhouse Agreements (NGAs)
to reduce the risk of economic activity moving from New Zealand to
countries with less stringent climate change policies. This “carbon leakage”
could occur if the carbon tax reduced the international competitiveness of
some firms or industries relative to producers in other countries that do not
have similar climate change policies.
2.11
In return for reducing emissions intensity to World’s Best Practice (WBP)
levels, eligible firms that successfully negotiate an NGA will receive either a
partial or full exemption from the carbon tax. WBP will be determined with
reference to the performance of the applicant’s international peers.
2.12
The government has also agreed on policy to assist energy-intensive small to
medium-sized enterprises adjust to a carbon tax, and will be working directly
with energy-intensive sectors on its implementation. Further details are
available at www.climatechange.govt.nz.
Expected impacts of the carbon tax
2.13
With the introduction of the carbon tax, consumption and investment are
expected to shift to less carbon-intensive goods and services. Responses to
the tax could take a wide variety of forms, ranging from investment in more
fuel-efficient technology, to improved logistical planning, to substitution of
fossil fuels with renewable energy sources. Investors and firms involved in
carbon-intensive activities may invest in forest sinks6 or the Projects to
Reduce Emissions programme7 to manage their exposure to the price of
greenhouse gas emissions.
5
Fugitive energy emissions are those that leak or are vented during production and use of sources of energy, such as flaring at oil
and gas production sites, leaks from gas distribution lines and methane emissions from coal mines.
6
Through the government’s Permanent Forest Sink Initiative – http://www.climatechange.govt.nz/policy-initiatives/sinkcredits.html.
7
Under the Projects to Reduce Emissions programme, the government awards internationally tradable emission units to firms
undertaking projects that would not otherwise be viable and that will achieve additional reductions in emissions. Further details
on Projects can be found on the Climate Change Office website at www.climatechange.govt.nz.
6
2.14
The tax is expected to lead to a one-off increase in some prices. There will
be some costs to the economy as a result of the carbon tax, but these are a
necessary consequence of New Zealand playing its part in reducing global
emissions. However, there will also be offsetting benefits to the economy
from the business tax reforms that will be financed by the carbon tax.
2.15
Overall, estimates of the macroeconomic impact vary, although a small but
negative impact on economic activity (measured by GDP) is expected.
Depending on the international emissions price, GDP in 2010 is likely to be
in the order of 0.03% lower than it would otherwise have been.8
2.16
The effect of a $15 a tonne carbon tax on household budgets is difficult to
predict precisely. The complex nature of the electricity supply industry
makes a key element, the expected increase in electricity prices, difficult to
pin down, and households have a wide range of patterns of energy use. From
a current residential price of around 17 cents per kWh, electricity could
increase in price anywhere between 0.7 cents and 1.1 cents per kWh. The
cost of a $15 a tonne CO2 tax to a typical household is estimated to total in
the order of $4 a week for electricity, petrol and other fuels, assuming
average energy usage.
2.17
The table sets out a range of specific energy price increases that could result
from the carbon tax, assuming a tax rate of $15 a tonne of carbon dioxide or
carbon dioxide-equivalent greenhouse gas and that all of the cost of the tax is
passed on to customers, and the wholesalers and retailers do not price to
retain their margins (in percentage terms).
Examples of price effects of the carbon tax
Product
Approximate
price increase
(GST exclusive)
Approximate
price increase
(GST inclusive)
1 litre of petrol
3.5 cents
4 cents
1 litre of diesel
4 cents
4.6 cents
1 GJ sub-bituminous9 coal
$1.33
$1.50
10kg sub-bituminous coal
30 cents
34 cents
79 cents
88 cents
41 cents
46 cents
1 GJ natural gas
10
9 kg bottle of LPG
8
See ABARE Economics (2003) Economic implications of the Kyoto Protocol for New Zealand: Sensitivity analysis. Report to
DPMC, May 2003.
9
Over 90% of coal used in New Zealand is of the “sub-bituminous” rank.
10
Ignores tax on emissions during gas processing.
7
Fiscal matters
2.18
The revenue from carbon tax will not be used to improve the Crown’s net
fiscal position, but will be recycled through the tax system. Tax changes will
be announced in the 2005 Budget.
2.19
The carbon tax is also expected to have a number of incidental effects on the
government’s fiscal position. Renewable electricity generators, many of
which are state-owned, are likely to benefit. The government’s own energy
costs will increase. Some forms of income support are also expected to
increase as price rises caused by the tax flow through to the Consumer Price
Index. These incidental effects will be managed through the normal budget
process.
The climate change policy package
2.20
In October 2002, following extensive consultation, the New Zealand
government confirmed the policies that will assist it to achieve its obligations
under the Kyoto Protocol. Among these policies are a number of price-based
measures that are designed to provide financial incentives to reduce
greenhouse gas emissions. They include the carbon tax, Negotiated
Greenhouse Agreements and the Projects to Reduce Emissions programme.
2.21
Policies have also been developed for specific sectors such as agriculture,
forestry, small to medium-sized businesses and local government.
2.22
Other foundation policies which have been in existence for some time and
will assist New Zealand to achieve emission reductions include:

the National Energy Efficiency and Conservation Strategy, or NEECS,
which promotes energy efficiency and conservation and renewable
energy through establishment of energy efficiency and renewable
energy targets, research, education and some financial support;

the New Zealand Transport Strategy, which guides use of transport
services and infrastructure, including support for public transport;

the New Zealand Waste Strategy, which manages waste streams and
has contributed to reductions in greenhouse gas emissions from
landfills;

the government’s Growth and Innovation Framework, since there is a
strong relationship between growth in output, energy and CO2
emissions;

public funding, through the Foundation for Research, Science and
Technology, of research into energy technologies, including those
enabling greater use of renewable energy;

a programme of raising awareness of greenhouse gas emissions and
what the public can do about them, run by the Climate Change Office –
for example, the “4 million careful owners” campaign; and
8

the Sustainable Energy Framework work programme, led by the
Ministry of Economic Development, which examines longer-term
energy options from a sustainability perspective, of which climate
change is a major component.
2.23
The policy package is built around commitments made by New Zealand
when it ratified the United Nations Framework Convention on Climate
Change in 1993, signed the Kyoto Protocol in 1998, and ratified the Kyoto
Protocol in 2002. These commitments signal New Zealand’s commitment to
working with the international community to address the global problem of
climate change, and allow New Zealand entities to take advantage of the
international demand for Kyoto Protocol-compliant emission units.
2.24
Under the Protocol, New Zealand has agreed to limit its greenhouse gas
emissions in the first commitment period (2008 to 2012) to 1990 levels or
take responsibility for emissions over this target. The long-term goal is to
achieve lasting reductions in human-caused emissions.
2.25
See www.climatechange.govt.nz for more details about the government’s
climate change policy package.
International approaches to incorporating the price of carbon in domestic
economies
2.26
Countries such as Denmark, Norway, the UK and the Netherlands have
implemented climate change-related taxes11 (such as a duty on CO2 in the
Netherlands) and Switzerland has recently decided to do so.
2.27
Although developing countries and some economies in transition do not have
legally binding emissions targets under the Kyoto Protocol some are
implementing emission reduction initiatives. In some cases they are doing
this in co-operation with developed countries using the Kyoto Protocol’s
“Clean Development” mechanism.12
2.28
Emissions trading has begun in the European Union and in Norway, and is
planned to begin in Canada from 2008.
2.29
Japan is considering possible emission pricing instruments.
2.30
Although the USA and Australia have not ratified the Kyoto Protocol, they
have a number of national and state policies aimed at greenhouse gas
emissions (such as Australia’s Mandatory Renewable Energy Target scheme)
as well as some voluntary regimes.
11
Some of these may be superseded or modified as a result of participation in the EU ETS.
This mechanism allows developed countries to meet their target emissions through emission reduction projects in other
countries.
12
9
Chapter 3
PUTTING A PRICE ON GREENHOUSE GAS EMISSIONS
3.1
Producers and importers of fossil fuels and firms that carry out certain
industrial activities that produce greenhouse gas emissions will be
responsible for paying the carbon tax.13 It is expected that they will pass on
most of the cost of the tax to their customers.
3.2
Many aspects of the detailed administration of the tax are based on existing
systems, such as those for collecting excise duty, GST and the Energy
Resources Levy.
Minimising the number of points of obligation
3.3
It is not feasible to measure greenhouse gas emissions directly from their
countless individual sources. Instead, quantities of products such as coal, gas
and oil14 will be taxed in place of the emissions they are expected to produce
when used. Applying a carbon tax in this way is common practice for similar
taxes internationally, and was supported by the McLeod Review.15
3.4
Products will generally be taxed as early in the supply chain as possible,
since this will usually result in the smallest number of liable parties, ensure
comprehensive coverage and minimise the administration and compliance
costs of the tax.
3.5
For example, coal will be levied as the miner sells it (other than for export)
or uses it, or as it is imported. There are relatively few coal miners and
importers compared with the number of users. A user of coal “downstream”
from the miner or the importer would see the impact of the tax indirectly,
through the price paid to its supplier.
3.6
Some products will not be taxed at the first point in the supply chain because
of the difficulty of measuring quantities or emission factors at that point, or
for administrative reasons. For example, crude oil going to an oil refinery
will not be taxed; instead the products made by refining crude oil will be
taxed.16 Jet fuel, discussed later, is the other major exception.
3.7
Beyond these administrative benefits, the point of obligation for the tax
should generally have little economic effect as long as pricing agreements
allow for full or partial pass-through of the price increase to customers.
13
This approach to the design of the tax is based on the April 1997 Treasury Working Paper, The design of a possible low-level
carbon tax for New Zealand.
14
Appendix 1 lists products likely to be subject to the tax. Biofuels such as wood will not be taxed, but the fossil fuel component
of composite fuels will be taxed.
15
Tax Review 2001, Final Report, October 2001, page 119.
16
Combustion of crude oil will also be subject to the tax unless an NGA provides an exemption.
10
Setting the price of emissions
3.8
The rate of the tax is intended to approximate the price of carbon dioxideequivalent emission units on international markets in the first commitment
period. This is consistent with Kyoto principles, which aim to promote
abatement around the world at least cost.
3.9
The international price for the first commitment period is difficult to forecast
and, given that the market is relatively “immature”, may be relatively
volatile. Further, there are various “markets” (or types of emission units)
that could be referred to. It will take some time for these markets to settle
down and for reliable trends of prices, price differences and volumes to
become evident. For this reason, the government cannot specify at this stage
the basis on which prices might be adjusted.
3.10
The government is aware that changing the rate frequently would create its
own administrative and compliance costs, as well as cause business
uncertainty.
3.11
The government has decided that the carbon tax legislation will initially set
the tax at NZ$15 a tonne CO2-equivalent emissions. The rate will be
amended only if it diverges significantly and on a sustained basis from the
long-term trends in the international price, but it will not exceed $25 a tonne
of CO2 during the first commitment period.
3.12
The government will develop a method for setting and changing the rate of
the carbon tax as the various markets and information about those markets
develop further. It will be the subject of public consultation once market
information is more readily available.
Applying the price consistently
3.13
To apply the tax consistently to a given product or stream of production
emissions, the quantity of each liable product will be multiplied by an
“emission factor” and then by the rate of the tax, according to the formula:
(quantity of product )  (emission factor )  (rate of charge )
Example:
(1,000 GJ bituminous coal sold in period) × (0.09 tonnes of carbon dioxide-equivalent emissions per
GJ of coal) × $15 = $1,350
11
3.14
Emission factors are used to calculate the tonnes of carbon dioxideequivalent (“tCO2-e”) emissions expected as a result of the use of one unit of
the product (such as a litre of petrol). This takes account of the “global
warming potential” (GWP) of a product’s greenhouse gas emissions relative
to the effect of one tonne of carbon dioxide.
3.15
For example, the GWP of methane is 21,17 meaning that one tonne of
methane has a similar impact over 100 years to 21 tonnes of CO2. If pure
methane leaks or is vented without being burned, its emission factor (in terms
of mass) is 21 tonnes CO2-e per tonne of methane. If it is burned, methane
reacts with oxygen to form carbon dioxide and water, so methane supplied as
fuel has a much lower emission factor than vented methane. The emission
factor for a mixture of gases such as natural gas takes account of the GWP of
each constituent.
3.16
Emission factors can be expressed in terms of any convenient unit of product
quantity, and convenience has been the main criterion for the units proposed
for the carbon tax (see Appendix 1). For fossil fuels this is often an amount
of energy (such as tCO2-e /GJ) rather than mass (such as tCO2-e/t).
3.17
The necessity of applying the tax consistently with respect to a product’s
global warming impact must be balanced against the importance of limiting
the associated administrative and compliance costs to an acceptable level.
Calculating and verifying emission factors for a large number of products
that are sold only in small quantities would be costly relative to the
environmental gain achieved.
3.18
The Intergovernmental Panel on Climate Change (IPCC) has established
default emission factors for a large number of goods in a large number of
uses. However, individual nations are encouraged to set their own emission
factors when this can improve accuracy. The IPCC sets out methods of
doing this, although it has not developed them for all products.
3.19
An emission factor for each product will be specified in New Zealand’s
carbon tax legislation, based on the emission factors used by the New
Zealand Inventory Agency (as named by the Climate Change Response Act)
where suitable. Changes to reflect new knowledge of emissions or new
products or uses can be made by regulation.
3.20
Some products, such as refined oil products and standard gas products, have
relatively little variation in their carbon content and, for practical purposes,
have a constant emission factor.
17
This is the Intergovernmental Panel on Climate Change (IPCC) 1995 100 year GWP for CH4. Parties to the UNFCCC used the
IPCC 1995 GWPs in 1997 when establishing national emission targets for the first commitment period. They are therefore used
for determining compliance with those targets, and will be used for calculating the carbon tax. Increased scientific understanding
suggests that the “true” global warming potential of methane in the atmosphere is higher than 21, and this may lead to a higher
number being used in agreements relating to later periods.
12
3.21
In the consultation carried out to date, industry representatives have
highlighted that precise emission factors for fossil fuels depend on a
product’s physical source. Most fossil fuels are expected to be charged using
a default emission factor, but there will also be provision for “specific”
emission factors to be used in certain cases. For example, a specific emission
factor could be used for coal from a particular mine if a laboratory approved
by the Climate Change Office verified that it was more than 2% below that
indicated by the relevant default emission factor. Any independent
laboratory recognised by the industry as having the expertise for this task
would be likely to be approved. Some firms will already be aware of specific
emission factors that will still be relevant in 2007.
3.22
In some cases, laboratory testing of products with specific emission factors
may not be required. For example, firms sometimes blend products with
known emission factors, or products that are to be subject to the tax with
products that are not. Firms paying the tax would be permitted to calculate
the emission factor for the blended product without verification, provided
that they took reasonable care to do so accurately. Alternatively, they could
account separately for the components of the blend.
3.23
In cases of separation of a product into two other products, appropriately
qualified experts would be able to calculate a specific emission factor. It
could be based on the known emission factor of the source (say, a gas
stream), the quantity and emission factor of a product removed from that
stream (say, carbon dioxide), or the quantity of the remaining product.
3.24
Default emission factors for products for which specific emission factors can
be used would generally be set towards the upper end of the range of
emission factors observed for each product type. Setting the default emission
factor at an average of the actual emission factors for a product would tend to
result in undertaxing emissions.
3.25
The likely default emission factors for a number of products are shown in
Appendix 2. It lists products for which firms will be able to seek a specific
emission factor.
Pass-through of the tax
3.26
The intended effect of the tax on relative prices will generally flow through
the supply chain, depending on supply and demand elasticities at the time.
3.27
If the New Zealand price of the product does not tend to increase when New
Zealand demand increases (as is likely to be the case for liquid petroleum
products) there will generally be a presumption that the carbon tax has
passed in full through the supply chain to the emitter. There is some
uncertainty as to whether there will be 100 percent pass-through of the
carbon tax on natural gas and some coal, and the impact on the electricity
price of taxing fossil fuel and geothermal energy used in electricity
generation is particularly difficult to predict.
13
3.28
Further analysis of these issues is being carried out and affected parties will
have further opportunities for consultation on the matter.
Existing contracts
3.29
Given that a carbon tax has been contemplated since at least 1997, it is
expected that most energy supply contracts applying in 2007 will allow the
tax to be reflected in the energy price. However, it is possible that some,
particularly older, contracts have not taken account of the likelihood that the
carbon tax will be introduced.
3.30
Re-negotiating contracts before they are due for review or renewal is costly.
Until these contracts run their course or are renegotiated, they will restrict the
ability of suppliers to pass on the tax to energy consumers. In some cases,
this could delay the intended effect of the carbon tax on fossil fuel
consumption and be costly for suppliers. A number of industry participants
have expressed concerns about this.
3.31
As a general principle, the government is reluctant to override commercial
contracts negotiated in good faith between willing parties. However, given
the concerns of some industry participants, the government will consider any
submissions that the carbon tax legislation should include a provision similar
to section 78 of the Goods and Services Tax Act 1985, to allow the passthrough of the tax, and any changes in its rate, in certain cases. Another
precedent for such an override can be found in the Energy Resources Levy
Act 1975.
3.32
Any override would not affect contracts that allow pass-through or expressly
deal with the impact of the tax.
Stockpiles of coal and petroleum products
3.33
There are two potential problems in applying the carbon tax to stockpiles.
One relates to the transition on introduction, and the other to the carrying
cost of the tax on some of the very large stockpiles that consumers hold (as
opposed to producers).
Transitional stockpiles
3.34
Some firms, particularly some electricity generators, are able to store large
stocks of untaxed fuel at the introduction date. This is most likely to happen
in the case of coal users, because of the ease of storage, and least likely for
gas users, because there is little available storage for gas. Storage capacity
for liquid petroleum products is limited, but some stockpiling is possible.
14
3.35
Given that the carbon tax will apply from 1 April 2007, and there is a risk of
unintended disparities of the initial impact of the tax on the different fuels, it
follows that users’ coal and liquid fuel stockpiles that would otherwise not be
taxed should be taxed on that date. Obviously, there is a question of scale
here, and it would be sensible to limit the tax to larger stockpiles.
Carrying cost of the tax on large stockpiles
3.36
One firm has raised the question of the carrying cost of the carbon tax on its
potentially very large stockpile of coal. It correctly pointed out that
greenhouse gases will be released only when the stockpile is used.
3.37
For reasons of compliance and administrative simplicity, the tax will be
levied at the earliest practical point in the supply chain. In the government’s
view, the mere existence of a stockpile is not sufficient reason to overturn the
principle. However, if the stockpile is very large and therefore the carrying
cost of the carbon tax is also large, relief could be offered by some form of
stock-on-hand adjustment. The government is interested in hearing from
those who might have very large stockpiles that may be held for longer
periods of time about whether some form of relief would be necessary.
Submission points
The government welcomes submissions on the issues discussed in this chapter and, in
particular:

To what extent, if any, should the carbon tax legislation override existing
contracts for the supply of energy resources to allow pass-through of the tax,
and what would the consequences of this be?

For what energy sources might a contractual override be necessary?

Is there a need to tax transitional stockpiles if they are very large?

Is there a need to consider the carrying cost of the tax on very large users’ stockpiles?
15
Chapter 4
HOW THE TAX WILL WORK
4.1
The administration of the carbon tax, exemptions, rebates and refunds will
largely be modelled on existing systems for tariffs, excise duties and GST.
Administrative roles of government agencies
Inland Revenue Department
4.2
Inland Revenue will be the lead administrative agency for the carbon tax. It
will administer all points of obligation to pay the tax other than imports and
removals from oil refineries, and all rebates except those administered by the
Customs Service.
4.3
The standard Inland Revenue rules for handling tax will apply to its carbon
tax mechanisms.
New Zealand Customs Service
4.4
The New Zealand Customs Service will collect the tax on products that are
subject to the tax at the point of importation or when removed from a
refinery, except for jet fuel – discussed later. The tax will be integrated with
existing revenue collection systems.
4.5
Customs will also pay rebates to exporters of liquid petroleum products,
except for those derived from compressing gas.
4.6
The standard Customs rules for payment of excise duty, excise-equivalent
duty, tariff duty and GST will apply to the carbon tax.
4.7
As happens with GST, the Customs Service and Inland Revenue will
exchange information to support the administration of the tax. For example,
before the tax is implemented, Inland Revenue and the Customs Service will
identify and contact firms that are likely to be required to register.
The New Zealand Climate Change Office
4.8
The New Zealand Climate Change Office (CCO), based in the Ministry for
the Environment, is the lead agency with respect to climate change policy
and technical matters. On many policy and technical issues CCO works
collaboratively with other government agencies that have a major interest or
relevant expertise – such as the Treasury, Inland Revenue, Customs Service,
Ministry of Agriculture and Forests, and Ministry of Economic
Development.
16
4.9
The CCO will be involved in non-collection aspects of the administration of
the tax where appropriate. For example, it is responsible for negotiating
NGAs, is the lead agency with respect to setting emission factors, and works
with the Treasury and other agencies on setting the rate of the tax. It will
keep Inland Revenue and the Customs Service informed of any details
needed to enforce the carbon tax and to deliver rebates and exemptions.
4.10
Appropriate information exchange protocols will be set up between the CCO
and Inland Revenue so that each agency can properly fulfil its carbon tax
obligations.
Inland Revenue registration and filing requirements
4.11
Because the tax must be paid at the point of supply, many aspects of the
administration of the tax will be modelled on existing GST legislation.
Indeed, the carbon tax legislation is likely to use the term “supply”, as used
in this paper, rather than “sale”.
4.12
The “time of supply (or sale)” will generally mean the earlier of the date of
payment and the date of invoice. There will be a transitional rule on
introduction to modify the more usual time-of-supply rule – the time of
supply for product invoiced or paid for, but not delivered at the introduction
date, will be the actual delivery date.
4.13
Firms liable to pay the tax directly and NGA firms will be required to file
regular returns to Inland Revenue. Other firms claiming rebates of the tax
(for example, a firm that buys coal and then exports it, becoming eligible for
an export rebate) will do so in relation to one or more tax periods, but will
not have to file regular returns. One-off returns are necessary to allow for
casual exports.
4.14
Return filing will generally be electronic. Liable firms’ filing obligations
will fall due when their GST return filing obligations fall due, albeit in a
separate return. A firm required to file a carbon tax return but not registered
for GST will be required to file six-monthly, unless it has elected to file twomonthly or monthly.
4.15
The administrative rules for amounts payable and for refunds will generally
be the same as for GST, including rules for when payments are due and useof-money interest on late payments. Firms eligible for a refund will be able
to elect to transfer any payment due to them from Inland Revenue to meet tax
obligations such as GST, and Inland Revenue will be able to use such
amounts to reduce any amount the firm owes, such as outstanding income
tax.
17
4.16
Normal rules for dealing with errors in GST returns and payments and for
failures to meet GST obligations will apply to the tax. The disputes process
with respect to obligations to Inland Revenue will be largely the same as for
GST and income tax, but some technical issues, notably relating to product
classifications and emission factors, will be determined by the CCO.
Estimation issues
4.17
The amount of the tax payable, and the amount of any rebates, will depend
on the quantities and emission factors of each taxable product.
4.18
The CCO will provide guidance on what constitutes a “reasonable” level of
accuracy, and declarations by independent experts may be needed in certain
situations.
4.19
The units of measurement for each broad category of products and emissions
(such as “liquid fuels”) will be defined in legislation. The likely emission
factors for some key products are presented in Appendix 2. They are
intended to be expressed in units widely used by the industry paying the tax.
4.20
When specific emission factors are used the cost of any scientific tests that
are required will be at the expense of the firms involved, except when
commissioned by Inland Revenue or the Customs Service, as part of an audit.
Exemptions, rebates and refunds
4.21
Relief from the tax, in the form of a rebate or exemption, will be provided:

under the terms of Negotiated Greenhouse Agreements;

on export of fossil fuels; and

when carbon is permanently embedded or sequestered, other than in
biomass.
4.22
Exemptions mean that a firm that would otherwise have an obligation to pay
the carbon tax is not required to pay it for a particular product or activity.
Rebates are subtracted from any carbon tax on the firm’s outputs to
determine whether it is eligible for a net refund from the Crown (which will
generally be the case for an NGA firm) or has a net liability to pay the tax.
4.23
The administrative and compliance costs of measuring emissions from some
sources mean that it is not likely to be cost-effective to apply the tax to all
producers.
18
4.24
A minimum threshold of $2,000 worth of emissions a year, calculated as if
the charge was being applied, is proposed for application of the carbon tax to
any taxpayer. A firm will be required to register to pay tax only if its carbon
tax liability for the past year, had the carbon tax applied, or its expected
carbon tax for the coming year, had the carbon tax applied, exceeded this
amount. This rule will be modelled on the GST minimum threshold for
registration.
4.25
Coal miners will not be required to pay the carbon tax on coal if the value of
the coal they supplied or used in the past 12 months, and the expected value
of the coal in the next 12 months, is less than $2,000. This is intended to
provide a simple way of excluding from the carbon tax a number of
landowners for whom coal production is a minor incidental activity, avoiding
the need to calculate their potential carbon tax liability.
4.26
The standard Customs Service $50 minimum threshold will apply to total
Customs Service levies and taxes, including the carbon tax on imported
products.
Calculating rebates and refunds
4.27
Amounts of rebates will be calculated using the same formula as amounts of
the tax, subject to a weighting reflecting an assessment of how much of the
tax has been passed through18 to the firm claiming the rebate, and reflecting
any “partial rebate” agreed in an NGA:
(quantity of product) × (emission factor) × (rate of charge) × (weighting)
Example: Firm that buys and exports bituminous coal (assumes 100% pass-through)
(1,000 GJ bituminous coal purchased and exported in period) × (0.09 tonnes of carbon dioxideequivalent emissions per GJ) × $15 × 100%
= Rebate of $1,350
The refund is the sum of the rebates in this case because the firm has no direct liability for the tax.
4.28
The emission factor used to calculate rebates will generally be the one that
applied to the input when the tax was levied on it. For products with only
one emission factor, such as “spec gas”, this will be straightforward.
However, determining the “rebate” emission factor will be more complex
when a “specific emission factor” is required. This will arise for export of
coal other than by the miner, for embedding of carbon from coal, and for
rebates to NGA firms.
18
As noted in chapter 3, work on a method to determine how much of the tax will be passed downstream from fossil fuel
producers and importers is in progress.
19
4.29
It would be unusual for firms to be able to gain a rebate for fossil fuel
purchases as well as be liable for the tax on their use or sale of fossil fuel.
Even so, some will be in this position, and their net liability or refund will be
calculated as shown in the example below.
Example: Firm that mines lignite for local use and buys and exports bituminous coal (assumes
100% pass-through)
Amount of tax
[(600 GJ lignite from own mine sold within New Zealand in period) × (0.095 GJ of carbon dioxideequivalent emissions) × $15 = $855]
- Amount of rebates
[(1,000 GJ bituminous coal purchased and exported in period) × (0.09 GJ of carbon dioxide-equivalent
emissions) × $15 × 100% = $1,350]
= [Refund of $495]
Timing of rebates and refunds
4.30
The timing of refunds of the tax to registered firms will be the same as that of
refunds of excess GST input tax credits. Inland Revenue must refund any
excess GST input tax by the fifteenth working day after the return is
furnished (but typically makes the refund sooner), or the working day after a
determination by the Commissioner of the amount payable. If the refund is
not paid within this timeframe, interest is payable by Inland Revenue (subject
to a right to withhold payment under certain circumstances).
4.31
The tax period in which eligibility for a rebate arises as a result of purchase
of a product will be the date of “supply” of the product to the eligible firm.
4.32
As with GST input credits, rebates will be claimed at the end of each
charging period. In particular, it is anticipated that occasional exporters will
file as required, and “nil” returns will not be required from them.
4.33
Rebates administered by the Customs Service will be subject to the standard
conditions that apply to duty drawback under the Customs and Excise Act
1996.
Evidence of emission factors
4.34
Firms seeking a rebate of the carbon tax will often be able to apply a standard
emission factor. This will apply to standard products such as “spec gas”, but
for products with many possible emission factors, such as coal, will require a
different treatment. In these cases, firms will have to be able to support any
claim for a rebate with information from the supplier to verify the emission
factor used to calculate the rebate.19
19
If this is impossible for some reason (for example, because the supplier is unknown) there may also be an option to have the
product tested, or use a standard emission factor.
20
4.35
An option being considered is whether suppliers of fossil fuels should be
required to supply emission factors if requested to do so by customers.
Negotiated Greenhouse Agreements
4.36
NGAs provide relief from the carbon tax on emissions arising from a firm’s
production activities. NGAs do not affect obligations to pay the tax on fossil
fuels sold by NGA firms. NGA firms will have both exemptions from
obligations to pay the carbon tax directly, and rebates of the tax as reflected
in the prices of their inputs.
4.37
The Climate Change Office is analysing the likely price pass-through for
electricity, natural gas, and coal, to identify a standard pass-through
weighting for each relevant source of emissions. NGA firms have been and
will be consulted as part of this process. It is anticipated that standard
weightings for each product will be set in the legislation or by regulation.
4.38
Other than for electricity, NGA rebates will not cover a “second-round price
increase”. For the purposes of calculating NGA rebates, the phrase “second
round price increase” refers to an increase in the price of a product or service
that does not result from application of the tax to the input itself, but rather
from application of the carbon tax to a substitute product. (For example,
charcoal made from wood is a renewable substitute for coal and may increase
in value as a result of the tax on coal.)
4.39
Although Inland Revenue is responsible for administering relief under
NGAs, the scope and level of relief will be determined as a part of the
agreement.
Exported products
4.40
Exporters of emitting products will be entitled to relief from the impact of the
tax because the emissions will occur outside New Zealand. The required
documentation will be the same as currently required to justify zero-rating
for GST on exported goods or for claiming duty drawback under the
Customs and Excise Act 1996.
4.41
For some exported emitting products, exemption will be achieved
automatically because the product will not pass the point of obligation – first
sale or use in New Zealand.
Embedded or sequestered carbon
4.42
When carbon that has been or would normally be subject to the tax is
embedded in a product or permanently contained (for example, in a spent gas
field) so that it will not be released into the atmosphere, relief from the tax
will normally be available. Sequestration of CO2 in forests or other biomass
will not qualify for this form of relief.
21
4.43
Embedding of fossil fuel into products that emit greenhouse gases only in
very small amounts, very slowly or in exceptional circumstances will
generally be treated as permanent embedding. Examples include tyres, tar
and plastic. This reflects both the small quantity of these emissions and the
cost of charging for them. However, if it becomes the norm for the product
to be used as a fuel the tax may be applied at some point. (See discussion of
the burning of embedded carbon from fossil sources in chapter 5.)
4.44
When possible, uses of fossil fuels that do not result in emissions will be
dealt with by not imposing the tax at the normal point of obligation. For
example, a New Zealand refinery will not be taxed for the sale of tar, which
does not release CO2 (and releases only minimal amounts of other
greenhouse gases) during its normal lifetime.
4.45
To ensure that the scale of embedding by a firm justifies the administrative
costs of providing a rebate, the Climate Change Office will approve the firms
entitled to receive rebates for embedding and the rebates available to each
approved firm. Once the approval is in place, a rebate can be claimed from
Inland Revenue.
On-selling of rebated products
4.46
A firm that has claimed a rebate for a product will be required to pay carbon
tax if it on-sells the product in New Zealand or uses it for a purpose outside
the scope of the firm’s NGA. The emission factor to be applied will
generally be the one that applied when the rebate was calculated.
Other tax consequences
4.47
As with fringe benefit tax and excise and tariff duties, normal income tax
rules will determine when the tax is deductible from income. The treatment
of refunds (for example, in relation to an NGA or an exported product) will
follow normal income tax principles in that the expenditure it relates to will
be reduced by the amount of the refund. Thus the tax will generally be
deductible for businesses, and any rebates will reduce the deduction.
4.48
Final consumers bear the cost of GST and, to ensure this, GST must apply at
all points of the supply chain. The tax is expected to increase the price at
which affected products are sold by producers and importers, and GST is
taxable on the full value of the goods and services supplied. Therefore GST
will apply to the part of that value attributable to the tax. Payment of the
carbon tax itself will not be treated as payment for a supply.
22
Submission points
The government welcomes submissions on the issues discussed in this chapter and, in
particular:

How can the cost of filing returns be kept to a minimum while ensuring the
integrity and fairness of the tax?

Are the proposed units for product quantities and emission factors convenient
and sufficiently precise?

Are the proposed timing rules for payment and rebates of the tax reasonable?

Would firms claiming rebates face difficulties obtaining evidence of specific
emission factors?

Under what circumstances should a firm in your industry be required or
permitted to re-assess a specific emission factor (for example, because of
changes in the product being mined)?

What evidence that the tax has been paid on a product should a firm claiming a
rebate be required to have?
23
Chapter 5
ISSUES FOR SPECIFIC INDUSTRIES
5.1
Points of obligation to pay the carbon tax, as well as some of the rules
relating to emission factors will vary from industry to industry.
Petroleum oil and oil products
5.2
The tax will apply to imported oil products other than those delivered
directly to a New Zealand refinery, and to most emitting products of New
Zealand oil refineries. It will be collected at these points by the Customs
Service, as part of the existing excise system. Process emissions from a
refinery will also be subject to the tax, which will be payable to Inland
Revenue.20
5.3
This approach is intended to minimise the compliance and administration
costs of the tax, using relatively few points of obligation and relatively few
emission factors for the bulk of the oil product sold.
5.4
Emission factors for crude oil vary with each shipment, and even within the
hold of an oil tanker. Determining emission factors for crude oil could
therefore be imprecise, costly or a poor compromise, so the focus is on the
refined products produced from it.
5.5
It is possible to burn unrefined crude oil to produce useful energy, although
this does not appear to be occurring in New Zealand at present. In such cases
the carbon tax would be applied, so appropriate emission factors would be
needed.
Fossil-derived lubricating oils
5.6
In contrast to oil used as fuel, there are many varieties of lubricating oil,
some of which are imported in small quantities. It is unlikely to be costeffective to calculate emission factors for all of these products. However,
lubricating oils contribute to greenhouse gas emissions and should, in
principle, be subject to the tax.
5.7
Emissions from lubricating oil arise in a number of different situations, such
as when oil used to lubricate an engine is burned, or when used oil is
collected and burned as a fuel. This happens on a reasonably large scale,
notably in greenhouses and in cement plants. Most lubricating oils that are
not burned for fuel break down within a relatively short period of time,
ultimately increasing greenhouse gasses in the atmosphere.
20
As with other emission sources, this is subject to any exemption applicable as a result of an NGA or export of the product.
24
5.8
Applying the tax to lubricating oils when they are burned would risk creating
an incentive for illegal disposal. Such disposal would create additional
environmental problems. Furthermore, there are a large number of locations
where burning might occur. Therefore, to ensure full coverage, minimise
administrative and compliance costs and avoid unwanted environmental
effects, the carbon tax should apply to lubricating oils when they are
removed from a refinery or imported.
5.9
Because there are many lubricating oils21 with many emission factors, new
products are introduced frequently, and lubricating oils make a relatively
small contribution to New Zealand’s greenhouse gas emissions, it would not
be cost-effective to apply a different emission factor to every product.
Therefore the government intends to establish default emission factors for,
say, three broad categories of lubricating oil, such as “heavy engine oil”,
“light engine oil” and “other lubricating oils”.
5.10
Specific emission factors will not be permitted for lubricating oils, as this
would add significantly to the costs of administering and complying with the
tax. Competing firms would face pressures to identify specific emission
factors for each of their products adding costs to the industry as a whole.
5.11
As discussed later with respect to jet and marine fuels, special constraints
affect the application of the tax to the use of lubricating oils in these
industries. The government is considering how to deal with these
applications of lubricating fuels, and whether an exemption or rebate
approach would be appropriate for lubricating oils used on international
journeys.
Aviation fuel sold for domestic use
5.12
Individual nations are not responsible, under the Kyoto Protocol, for
emissions from international transport.
Therefore jet fuel used on
international flights is outside the scope of the tax. About 90 percent of jet
fuel sold in New Zealand is used on international flights.
5.13
A potential constraint on applying the tax to fuel used on domestic flights is
that New Zealand is bound by international air services agreements that do
not allow taxation of consumables used on domestic legs of international
flights by airlines claiming “cabotage”22 rights. However, the government
understands that no airline is currently exercising such rights.
5.14
Because of the small proportion of the jet fuel sold in New Zealand that will
be covered by the tax, it will apply to jet fuel further down the supply chain
than it will for most other fossil fuel products. Jet fuel will therefore not be
taxed when removed from New Zealand oil refineries or imported.
21
22
According to an industry source, there are over 1,000 different lubricating oils on the New Zealand market.
The term “cabotage” is used to refer to the carriage of cargo or passengers on a domestic leg of an international service.
25
5.15
Instead, the tax will be payable by a firm, generally an oil company, when it
supplies jet fuel to “domestic airlines”, including foreign-owned domestic
airlines, for domestic flights. International airlines and international flights
by domestic airlines will not be taxed.
5.16
Domestic and international flights can be distinguished by their flight
numbers. Moreover, it is rare for an aircraft to carry more fuel than is
required to reach its next destination safely, owing to the cost of carrying
excess fuel. Therefore the proposed treatment of jet fuel will be unlikely to
result in charging fuel used outside New Zealand airspace.
5.17
The government is considering what unintended risks the proposed approach
might pose and how such risks might be mitigated.
5.18
The government understands that most “avgas” sold in New Zealand is used
domestically. Therefore avgas will be subject to the tax when imported or
removed from a refinery, and a rebate will be available if it is used on an
international flight.
Transport by sea
5.19
New Zealand is not treated under the Kyoto Protocol as being responsible for
emissions from international transport, although these emissions are noted as
a memorandum item in the national inventory.
5.20
New Zealand’s national inventory includes emissions from fuel supplied to
ships in New Zealand, except when supplied for international transport.
5.21
Most fuel purchased in New Zealand is used in New Zealand. Therefore the
tax will apply to fuel used in shipping when it is imported or removed from a
refinery. A rebate will be available to a ship purchasing fuel for international
transport.
5.22
Where fuel is sold to a ship carrying coastal cargo while transiting between
New Zealand ports as part of an international journey, the domestic leg uses
a small proportion of the total fuel used on the journey. It is proposed that
the whole trip be considered international. This would slightly increase the
cost margin between domestic operators of coastal shipping services and
international operators carrying coastal cargo while in transit. There would,
however, be similar treatment of domestic shipping operators and other
domestic transport modes.
Fishing
5.23
Under the Kyoto Protocol, New Zealand is responsible for emissions from
fishing operations when vessels refuel in New Zealand, regardless of where
the fishing occurs. The tax will be applied to all fuel used in fishing when it
is imported or removed from a refinery, with no rebate available to fishing
vessels except if available under a Negotiated Greenhouse Agreement.
26
Gas and gas products
5.24
The carbon tax will be applied to gas when first sold or used by the holder of
the petroleum permit under which the gas was produced. Flaring or venting
by the permit holder will be treated as “own-use”. Oil products removed
from the gas stream before the first point of sale (the point at which the
product is first supplied by a producer to another person) will be taxed under
the rules for oil products (for example, taxed when refined, if sent to a
refinery).
5.25
At the first point of sale, a standard emission factor based on energy content
(but assuming a standard carbon dioxide content) will apply to each standard
gas product, such as “spec gas”, LPG and LNG. If such products were
burned rather than sold, the same emission factors will apply.
5.26
If the gas sold or burned is not a standard product and does not meet
specification, a specific emission factor, verified by an approved laboratory,
will be required. Specific emission factors could also be calculated by the
firm for gas streams that are blended in fixed proportions from other gases
with approved emission factors.
5.27
If a petroleum permit holder sells or vents carbon dioxide in a gas stream
containing too little hydrocarbon content to be burned, the tax will apply to
the tonnage of carbon dioxide. This will avoid applying an energy-based
emission factor to a gas stream with only a trace amount of combustible gas.
5.28
Except in the case of venting by the petroleum permit holder, emission
factors will be based on the assumption that the hydrocarbons in the gas,
when used, will be burned and thereby converted into carbon dioxide.
5.29
Natural gas leaking from transmission and distribution pipelines is primarily
in the form of methane (CH4). The 2004 national inventory23 estimated that
less than two percent of the gas entering the distribution system is leaked in
this way. This estimate is based on assumptions about the metering error
component of distribution companies’ unaccounted-for gas.
5.30
Given the technical difficulty of measuring these emissions and the existing
incentives to minimise leakage, no adjustment will be made with respect to
the methane that is leaked from gas lines rather than burned after being
supplied, despite methane having a higher emission factor than carbon
dioxide.
5.31
The tax will also apply to imported gas products and be collected by the
Customs Service. Emissions from imported gas will be calculated on the
same basis as emissions from gas produced by petroleum permit holders.
Page 18, New Zealand’s Greenhouse Gas Inventory, Ministry for the Environment/New Zealand Climate Change Office, April
2004.
23
27
Coal and coal products
5.32
Coal will be subject to the tax when first imported, or sold or used by the
coal miner, including in the manufacture of briquettes or other energy
products.
5.33
Processed coal products such as briquettes will be subject to the tax when
imported, but the tax will already have applied to the coal used in making
coal products in New Zealand.
5.34
A default emission factor will be provided for each coal rank. It will be a
rounded average of the range within that coal rank. Emission factors are
likely to be close to those indicated in the table of products in Appendix 1,
but require some further research.
5.35
Using an “energy-based” emission factor eliminates much of the natural
variation that is found in emission factors based on product weight.
However, coal from some mines may have unusually high or low emissions
relative to energy – for example, owing to differences in hydrogen content.
The government is likely to accept the risk that some coal will have above
average emissions, but allow coal miners and importers to obtain and use a
specific emission factor. This would need to be verified by a laboratory
approved by the New Zealand Climate Change Office and, to avoid adding to
administrative and compliance costs in relation to very small differences, to
be at least two percent less than the relevant default emission factor.
5.36
Coal miners and importers will also be permitted to calculate specific
emission factors from the default or specific emission factors of coal blended
in fixed proportions, or when proportions of particular consignments are
adequately recorded.
Coal-seam gas emissions
5.37
Coal-seam gas can either be vented or burned. It must be reduced to a safe
level in the course of underground coal mining, but it quickly escapes to the
open air from open-cast mines. Although some emissions of coal-seam
gas occur naturally, the emissions increase as a result of human activity
(mining or extraction). The increase in emissions should, in principle, be
subject to the tax.
5.38
The National Inventory records coal-seam gas (CH4) emissions as 315 kt
CO2-e for 2003, or 0.86% of New Zealand’s total emissions from energy.
This is less than 0.5% of New Zealand's total greenhouse gas emissions.
These estimates are based on measurements of coal production and assumed
emission factors; the emissions are not measured directly.
28
5.39
If coal-seam gas is extracted for use as a source of energy (generally before
the coal is mined), the carbon tax will apply to the petroleum permit holder,24
using the same rules as for petroleum permit holders generally. (See
paragraph 5.24 on gas and gas products.) This is intended to ensure that the
tax applies equitably to all fossil sources of gas used for energy.
5.40
The impact of coal mining on coal-seam gas emissions varies significantly
between coal fields, locations within coalfields, and over time. For the
purpose of reporting emissions in the National Inventory, the Ministry of
Economic Development has chosen two “release factors” for all underground
mines, one for bituminous coal and one for sub-bituminous coal. These
indicate an average level of coal-seam gas emissions for a given quantity of
coal removed from these mines, and are useful for the purpose of calculating
New Zealand’s overall greenhouse gas emissions. However, these average
release factors would not be sufficiently accurate for the carbon tax: they
would result in over-taxing some mines and under-taxing others relative to
the true level of coal-seam gas emissions. On the other hand, attempting to
accurately measure the increased emissions associated with the mining of
coal from each location within each mine would be costly.
5.41
The quantity of coal-seam gas that is vented during the course of coal
mining is a very small proportion of New Zealand’s total emissions from
energy. There is no straightforward way of applying the tax accurately to
coal-seam gas, and some of the gas must be vented for health and safety
reasons. For these reasons it is proposed that coal-seam gas that is vented
during the course of coal mining not be included within the scope of the tax.
If it is collected and burned for energy, sold, or converted to another energy
product, the tax will be applied.
Geothermal energy
5.42
Geothermal resources are used for electricity generation, industrial process
heat and various other commercial and domestic applications. CO2 and CH4
are released from developed geothermal fields into the atmosphere at a much
faster rate than would occur naturally. The National Inventory records
emissions from this source as 367 kt CO2-e for 2002, or about one percent of
New Zealand’s total emissions from energy.
5.43
This percentage is expected to increase in the medium term as more
geothermal development takes place. To ensure that the incentives are
correct, the sector should be subject to the carbon tax, even though the
current take from geothermal resources is not large.
24
Under Crown Minerals rules, only a petroleum permit holder can make full commercial use of this gas.
29
5.44
Application of the tax to geothermal emissions is complicated by variations
in emissions between fields, within fields over time – particularly in the first
five years of using a new well, and according to the technology used.
However, large geothermal field operators do carry out routine
measurements that provide a basis for calculating greenhouse gas emissions.
Their estimates, based on monitored levels of geothermal fluid flows and
sampled gas concentrations, are provided annually to the Ministry of
Economic Development.
5.45
The government proposes to use this data as the basis for levying the tax on
major geothermal energy users. Normal requirements for taxpayers to take
reasonable care in calculating their tax liabilities will apply. The possibility
of an Inland Revenue audit will also ensure that there are clear incentives to
revise the estimated gas concentration – for example, if there is reason to
believe that it is no longer accurate – say, because a new well has been
introduced to the system.
5.46
Because the cost of measurement would be excessive for small users, it is
proposed that the tax apply only to firms using geothermal energy for
electricity generation or industrial process heat, and not to retail operations
such as motels or public baths. (This could change if a company supplied
such operations with energy from a geothermal source on a large scale.)
Emissions from down-hole heat exchangers are minimal, so these, too, will
be excluded from the tax.
5.47
Further work is needed to establish the precise point of obligation, but it is
anticipated that the large geothermal field operators or users, rather than
owners, will be the appropriate place.
Industrial process emissions
5.48
Emissions from limestone during calcination and gold processing are
examples of “industrial process emissions”.
Limestone
5.49
Limestone (calcium carbonate) differs from fossil fuels in that a significant
proportion of it is used in ways that do not emit greenhouse gases. Rather
than levy the tax on all limestone and provide relief for non-emitting uses,25
the government intends to levy the tax only when the use of the limestone
results in emissions.
25
Non-emitting uses include any use of limestone in its natural state, such as a building or roading material or when applied to
the soil without undergoing calcination.
30
5.50
The major industrial process that causes limestone to emit carbon dioxide is
calcination. This process is a key part of manufacturing cement and burnt
(quick) and hydrated (slaked) lime. Burnt lime is used in gold processing,
steel manufacture, road stabilisation and paper manufacture, while hydrated
lime is used primarily for water treatment, building materials, sugar refining
and leather tanning.
5.51
“Clinker” is an intermediate product that is created when limestone is
calcinated for the purposes of making cement. Further processing of clinker
is required to make cement. The tax would be imposed on the amount of
clinker made by cement manufacturers.
5.52
Lime fertiliser manufacturers will not be liable for the tax. Although
application of lime fertiliser does result in emissions, applying the tax to lime
might encourage farmers to increase use of nitrogenous fertilisers, emissions
of which are not covered by the tax. The tax is not intended to apply to
nitrous oxide emissions from agriculture, and nitrous oxide is a more potent
greenhouse gas than carbon dioxide. Furthermore, nitrogenous fertilisers
have other detrimental environmental effects.
5.53
As with coal and gas, the legislation will set a default emission factor, and
cement manufacturers will be able to use a specific emission factor verified
by an approved laboratory. Specific emission factors will need to be reverified if the manufacturer changes its processes or input in a manner likely
to increase the emissions per tonne of clinker produced.
5.54
Limestone also emits carbon dioxide when used as a catalyst in the
processing of fine metal ores. These emissions will be subject to the tax
according to the amount of limestone used in this way.
5.55
Emissions from limestone for purely educational or scientific purposes will
not be subject to the tax, since the wide dispersion and small quantity of
these emissions means that it is not cost-effective to apply the tax to them.
Soda ash
5.56
Soda ash (sodium carbonate) is used in the manufacture of glass, and carbon
dioxide is emitted as part of that process. The tax will be applied to soda ash
used in glass manufacture. The legislation will set a default emission factor,
and manufacturers will be able to use a different emission factor if they
obtain a figure verified by an approved laboratory.
Synthetic greenhouse gases
5.57
The “synthetic greenhouse gases”, or SGGs, include sulphur hexafluoride
(SF6) and the groups of chemicals known collectively as hydrofluorocarbons
(HFCs) and perfluorocarbons (PFCs).
31
5.58
PFCs are emitted during the production of aluminium and are also used in the
refrigeration industry as refrigerant gases, usually as part of mixtures also
containing HFCs.
5.59
SF6 is used in New Zealand primarily in the electricity industry as an
insulating gas in high-voltage electrical equipment. HFCs are used in a wide
range of applications where the ozone-depleting CFCs were once used –
mainly in the refrigeration and air-conditioning industry, although there are
many other uses.
5.60
The tax will apply to the emissions of PFCs during the production of
aluminium. Other policy mechanisms will apply to emissions from SGGs
that are imported into New Zealand.
Carbon pitch and carbon black
5.61
Carbon pitch, carbon black and related products release CO2 when used in
metal production. These products will be subject to the tax when imported or
when removed from a refinery using mass-based emission factors.
Petroleum products used as feedstock
5.62
There are a number of processes in which petroleum products are used as a
feedstock and CO2 is emitted – such as the manufacture of methanol,
hydrogen, hydrogen peroxide and steel. Complexity could arise in charging
some of these products because some of the carbon in the petroleum product
may be embedded in a final product that does not emit greenhouse gases
covered by the tax.
5.63
Natural gas is the feedstock for the production of ammonia-urea. Some of
the carbon from the gas is embedded in ammonia-urea but is released when
the ammonia-urea is applied as a fertiliser. Nitrous oxide, another and more
potent greenhouse gas, is also released, but nitrous oxide from agriculture is
not within the scope of the tax in the first commitment period. Nitrous oxide
is also released from other fertilisers, along with other detrimental
environmental effects, and applying the tax to ammonia-urea alone could
increase the use of these alternatives.
5.64
In the absence of comprehensive and consistent application of the tax to
fertilisers, the government proposes that it not be applied to the emissions
from ammonia-urea. The natural gas used as a feedstock in the manufacture
of ammonia-urea will not be subject to the tax: the manufacturer will
therefore be eligible for a rebate of the tax on this gas, as if it were being
embedded in a non-emitting product.
32
Burning of embedded carbon from fossil sources
5.65
Products such as tyres and plastics contain embedded carbon from fossil
sources. Such products can be used as a source of energy, either by burning
them directly or, in the case of plastics, converting them to diesel first. If
they are used as a source of energy they will release CO2 to the atmosphere.
Whether to apply the tax in such cases, and how to do so, will need to be
considered if serious proposals of this kind emerge.
5.66
At present, there is interest in New Zealand in burning end-of-life tyres, in a
suitably controlled environment, as a source of energy. This could play a role
in reducing the scale of another environmental problem – that of disposing of
waste tyres, and may displace other fuels with higher greenhouse gas
emissions per unit of useful energy.
5.67
If there is a proposal to burn tyres on a significant scale, the government will
then decide whether to apply the tax to new tyres and provide rebates for
non-emitting uses of used tyres; apply the tax to used tyres burned for energy
in controlled settings; or exclude tyres from the tax.
Products from biological sources
5.68
Biofuels and other products made purely from biomass will not be subject to
the tax. They include wood, charcoal made from wood, ethanol made from
dairy products, and diesel made from tallow or sugar. Carbon dioxide from
these sources is considered carbon-neutral because it is renewable. (Carbon
is re-absorbed within a relatively short period of time.)
5.69
Fossil fuels blended with bio-fuels will be subject to the tax in the usual way
and at the usual point of obligation, since blending with a bio-fuel does not
reduce the emissions from the fossil fuel when it is burned.
Submission points

Do the proposed methods for establishing emission factors achieve an
appropriate balance between accuracy and simplicity?

Does the proposed approach make appropriate use of existing information flows
in your industry?

What would be the most convenient and appropriate unit on which to base the
emission factor for each product? For example, should coal emission factors be
based on energy content or on mass?

What easily identified categories of lubricating oils would provide adequate
precision in terms of applying appropriate emission factors but not lead to undue
costs in calculating emission factors?

What impacts would the proposed approach have on airlines?
33

What impacts would the proposed approach have on the domestic shipping and
fishing industries?

The proposal is to have four default emission factors for coal – one for each
rank. Is this too many, too few, or about right?

Does the proposal not to apply the tax to coal-seam gas appropriately balance
the interests involved?

How can the tax be collected from geothermal energy users to a reasonable
degree of accuracy but without imposing excessive compliance costs?

What would be the best way of applying the tax to industrial process emissions,
particularly those where some carbon is embedded, or providing relief from the
tax where appropriate?
34
Appendix 1
GLOSSARY
Many of the definitions have been sourced from the GHG Protocol Initiative’s glossary, which can be found at:
http://www.ghgprotocol.org/glossary.htm.
Abatement An activity that results in the reduction
of gross greenhouse emissions.
Emission factor A factor relating activity data
(such as tonnes of fuel consumed, tonnes of product
produced) and absolute GHG emissions.
Anthropogenic Resulting from or produced by
human beings.
Emissions permit A commodity giving its holder
the right to emit a certain quantity of GHGs.
Emissions permits will, in the future, be tradable
between countries and other legal entities.
Biofuel Fuels made from plant or animal material,
e.g. wood, straw and ethanol from plant matter.
Biomass Biological matter or material.
animals and plants.
Living
Emissions unit A unit representing one tonne of
CO2 equivalent emissions. See Climate Change
Response Act for definition.
CO2 equivalent The quantity of a given GHG
multiplied by its global warming potential. This is
the standard unit for comparing the degree of
warming which can be caused by emissions of
different GHGs.
Energy Resources Levy (ERL) A levy applied,
under the Energy Resources Levy Act 1976, to a
range of fossil fuel products mined in New Zealand.
Exemption An exemption from an obligation to pay
the tax – for example, as provided for under an
NGA.
Carbon leakage The effect when an industry facing
increased costs at home due to an emissions price,
chooses to reduce production, close or relocate
production to a country with less stringent climate
change policies.
Excise duty Duty payable on domestic manufacture
of goods listed in the third schedule to Customs and
Excise Act 1996.
Carbon tax A tax applied to every tonne of CO2equivalent emissions of certain major greenhouse
gases imposed by the Crown by, or in accordance
with, relevant legislation.
Excise equivalent-duty Duty payable on imported
goods equivalent to the excise duty payable on
locally manufactured goods.
Commitment period A range of years within
which Parties to the Kyoto Protocol are required to
meet their greenhouse gas emissions target, which is
averaged over the years of the commitment period.
The first commitment period is 2008-2012. The
targets are set relative to greenhouse gas emissions
in the year 1990, multiplied by 5.
First sale Generally, the first time something is
supplied to a customer – for example by a mining
firm. A “second sale” would occur if the customer
on-sold the product. Special rules are needed to
define the point of first sale in certain situations,
such as when the supply and payment occur at
different times.
Competitiveness-at-risk group This group
includes sectors of the economy and particular
industries that would find adjustment difficult if
expected to make the transition to a direct price on
emissions in the first commitment period. For these
companies, it may be a choice of closing, changing
location to a country with no or weaker controls on
emissions (‘carbon leakage’), or reducing staff or
production in the short-term to compensate for the
increased costs. NGA eligibility criteria include
financial proxies to identify if a firm is considered
to be competitiveness at risk for the purposes of
NGA eligibility.26
Fixed-price contract A contract between a buyer
and a seller agreeing the price at which a supply of
goods or services will be made for a specified
period.
Forest sinks See Sinks.
Fossil fuel A fuel that is sourced from fossilised
biomass, such as oil and gas.
Foundation policies Actions that the government is
already taking, or has already approved, regardless
of its Kyoto Protocol commitments, which will
assist New Zealand to achieve emission reductions.
Fugitive emissions Intentional and unintentional
releases of GHGs from oil and gas wells and coal
mines, joints, seals, packing, gaskets, etc.
Embedded carbon Carbon that would have
otherwise been released to the atmosphere, but is
instead contained for the long term.
Global warming potential (GWP) A factor
describing the radiative forcing impact (amount of
warming) of one unit of a given GHG relative to one
unit of CO2. For example, under the Kyoto
Protocol, the GWP of methane is 21.
Emissions The intentional and unintentional release
of GHGs into the atmosphere.
26
See the Climate Change Office website for more details.
Look
for
the
NGA
application
guidelines.
www.climatechange.govt.nz
35
Greenhouse gas (GHG) For the purposes of the
carbon tax, GHGs are the six gases listed in the
Kyoto Protocol: carbon dioxide (CO2), methane
(CH4), nitrous oxide (N2O), hydroflurocarbons
(HFCs), perfluorocarbons (PFCs), and sulphur
hexafluoride (SF6).
Perfluorocarbons (PFCs) A group of greenhouse
gases used in a range of industrial applications.
PFCs are also produced during aluminium smelting.
The GWPs of these gases range from 6,500 to
9,200.
Process emissions (or industrial process
emissions)
Emissions
generated
from
manufacturing processes, such as cement or
ammonia production.
GST Goods and Services Tax, a value-added tax
levied under the Goods and Services Tax Act 1985.
Hydrofluorcarbons (HFCs) A group of
greenhouse gases used in a range of industrial
applications. The GWPs of these gases range from
1,300 to 11,700.
Industrial
emissions.
process
emissions
See
Rebate An amount intended to offset any liability to
pay the carbon tax or to compensate for the cost of
the carbon tax in accordance with an NGA.
process
Refund A net amount owed to a taxpayer because
the taxpayer’s rebates exceed any amount of the tax
for which the taxpayer is liable.
Intergovernmental Panel on Climate Change
(IPCC) Intergovernmental body that addresses
climate change science. The role of the IPCC is to
assess the scientific, technical and socio-economic
information relevant to the understanding of the risk
of human-induced climate change (www.ipcc.ch).
Relief Exemptions and rebates designed to offset
the cost of the tax.
Renewables Energy sources that are constantly
renewed by natural processes. These include solar,
hydropower and wind, as well as technologies based
on biomass.
Inventory A list of an organisation's or a country’s
GHG emissions and sources.
Revenue recycling The return to the economy of
revenue derived from the carbon tax.
Kyoto Protocol A protocol to the United Nations
Framework Convention on Climate Change that will
require countries listed in its Annex B (developed
nations) to meet reduction targets of GHG emissions
relative to their 1990 levels during the period 200812. For a country to be in compliance with its
Kyoto Protocol commitment, it must retire Emission
Units equal in number to its total greenhouse gas
emissions during the commitment period. A country
is assigned a number of units equal to its target (in
New Zealand’s case, five times its 1990 level of
emissions). These are Assigned Amount Units. See
definition of Emission Units for further explanation.
Second-round price increase An increase in the
price of a product or service that could be attributed
to the carbon tax or other climate change policies
but does not result from payment of the tax itself
(meaning no one has paid the tax on the product or
service at any stage in the supply chain), such as an
increase in the price of wood waste that is due to
increased demand for wood waste. NGAs do not
cover second round price increases.
Sequestration The uptake and storage of CO2. CO2
can be sequestered by plants and in underground/
deep sea reservoirs. (The latter is also called
geological sequestration.)
LPG Liquid Petroleum Gas, which, when burned,
produces the greenhouse gas carbon dioxide.
Methane A greenhouse gas with emissions coming
from ruminant livestock, landfills, coal mining and
other sources. For the purposes of the Kyoto
Protocol it has a GWP of 21.
Sink A “sink” actively removes a greenhouse gas
from the atmosphere, such as a growing forest. A
sink is distinct from a place where greenhouse gases
can be stored (“sequestered”), such as an
underground reservoir.
National Inventory A quantative list that estimates
anthropogenic emissions by sources and removals
by sinks of all greenhouse gases not controlled by
the Montreal Protocol.
Sulphur Hexafluoride (SF6) A greenhouse gas
used in electrical switchgear and other industrial
applications. Its GWP is 23,900.
Synthetic greenhouse gas Refers to HFCs, PFCs
and SF6.
Negotiated Greenhouse Agreements (NGAs) A
contractual agreement between the government and
a competitiveness-at-risk firm or sector to reduce
greenhouse gas emissions in return for partial or full
exemption from the carbon tax. The agreed
emissions path would have the overall objective of
achieving world best practice on emissions per unit
of production. More information is available on the
Climate Change Office website, including the
Model NGA and application guidelines.
Tariff duty Duty payable on imported goods for the
purposes of providing assistance to local industry or
the maintenance of international trade commitments.
UNFCCC United Nations Framework Convention
on Climate Change negotiated by the world’s
nations in 1992. It aims to stabilise greenhouse gas
concentrations at a level that avoids dangerous
human interference with the climate system.
Pass-through In this document, means the increase
in the price for which a product is sold, resulting
from the application of the carbon tax.
36
Appendix 2
PRODUCTS AND EMISSIONS SUBJECT TO THE TAX
Emissions from energy
Product
Greenhouse
gas emitted
Default emission factor27
Specific emission
factor permitted
Solid fuels
Coal28
CO2
Anthracite
0.106
tCO2-e/GJ
Yes29
Bituminous
0.090
tCO2-e/GJ
Yes
Sub-bituminous
0.092
tCO2-e/GJ
Yes
0.095
tCO2-e/GJ
Yes
Diesel
0.00271
tCO2-e/L
No
Petrol premium
0.00240
tCO2-e/L
No
Petrol regular
0.00232
tCO2-e/L
No
Light fuel oil
0.00294
tCO2-e/L
No
Heavy fuel oil
0.00303
tCO2-e/L
No
To be
determined
tCO2-e/L
No
Aviation gasoline (“avgas”)
0.00217
tCO2-e/L
No
Jet kerosene (“jet fuel”)
0.00254
tCO2-e/L
No
Crude30
To be
determined
tCO2-e/L
Yes
Naptha
0.00259
tCO2-e/L
No
Lignite
Liquid fuels
CO2
Lubricating oils
LPG
0.00303
tCO2
-e/kg31
No
Gaseous fuels
First sale, own use, and importation
Natural gas to specification32
CO2
0.05239
tCO2-e/GJ
No
Natural gas Kapuni
CO2
0.08410
tCO2-e/GJ
No
Other natural gas
CO2
Propane
CO2
0.05960
tCO2-e/GJ
No
Butane
CO2
0.06140
tCO2-e/GJ
No
CO2 stripped from natural gas prior to
first point of sale
CO2
1.00
tCO2
No
Natural gasoline liquids
CO2
0.00109
tCO2-e/L
Yes
Specific emission factor
Synthetic methanol
27
Yes
These emission factors are indicative of those to be used for charging. Rebate emission factors will sometimes differ.
Further work is being undertaken to establish suitably representative coal emission factors.
29
Specific emission factors would be allowed for all coal types only where the default emission factor is more than 2%
inaccurate.
30
If burned.
31
According to industry sources, quantities of LPG are usually measured in kilograms.
32
The emission factor to be used for gas that, when sold by the petroleum permit holder, meets the specification for gas
distributed through the main distribution network.
28
37
Product
Greenhouse
gas emitted
Default emission factor33
Specific emission
factor permitted
Fugitive emissions
Natural gas to specification that is
flared (as above)
Geothermal
CO2/CH4
Geothermal power and heat emissions
To be
determined
in each case
tCO2-e/tfluid
Yes
Emissions from industrial processes
Product
Coke
Emission
Default emission factor
Specific emission
factor permitted
CO2
Yes
Coke default
2.85
tCO2/tcoke
Domestic coke
3.10
tCO2/tcoke
Coke for iron and steel manufacture
3.08
tCO2/tcoke
General industrial coke
2.99
tCO2/tcoke
Petro-coke
3.03
tCO2/tcoke
Pitch
To be determined
Other
PFCs emitted during aluminium
production
PFCs
0.00018
tCO2-e/taluminium
Yes
Lime products (produced from
calcinating limestone)
CO2
0.00079
tCO2-e/tlime
Yes
Dolomitic lime
CO2
0.00091
tCO2-e/tdolomitic
Yes
lime
Clinker production
CO2
0.00079
tCO2-e/tclinker
Yes
Soda ash
CO2
0.00042
tCO2-e/tsoda ash
No
used
Limestone used in an industrial
process
33
CO2
To be determined
Yes
These emission factors are indicative of those to be used for charging. Rebate emission factors will sometimes differ.
38
Appendix 3
NEW ZEALAND’S GREENHOUSE GAS EMISSIONS
The New Zealand Greenhouse Gas Inventory for 2002 reported two principal sources
of emissions: the energy sector (primarily carbon dioxide emissions) and the
agricultural sector (primarily methane emissions). New Zealand is unusual for an
OECD country in having such a large portion of its emissions associated with
agriculture. The energy sector had the fastest growth in emissions, with transport and
electricity generation being the sub-sectors of highest growth.
Figure 1 does not include the effects of land use change.
FIGURE 1:
NZ’s sectoral emissions in 2002
(all figures in GgCO2 equivalent)
Waste
3.2%
Agriculture
49.2%
Energy
42.8%
Solvents
0.1%
Industrial Processes
4.7%
The carbon tax will not apply to the agriculture, waste or solvents sectors.
(“Agriculture” excludes energy and transport emissions from agriculture.) Within the
energy sector, the breakdown shown in figure 2 applies.
FIGURE 2:
Emissions from the energy sector: fuel
combustion category in 2002
(all figures GgCO2 equivalent)
FIGURE 3:
Industrial processes sector emissions in 2002
(all figures GgCO2 equivalent)
Consumption of
Halocarbons and SF6
11.4%
Other Sectors
10.7%
Transport
46.3%
Mineral Products
18.5%
Energy Industries
22.0%
Metal Production
61.8%
Manufacturing
Industries
21.0%
Within the industrial sector,34 the breakdown shown in figure 3 applies.
34
Does not include industrial heat and energy generation, which are included in the energy sector above.
39
Chemical Industry
8.3%